Malawi seems to be struggling to raise tax revenue despite continued efforts to boost domestic revenue mobilisation through a number of initiatives, published data shows.
Data published by the Revenue Statistics in Africa, a collaboration between African Union Commission, African Tax Administration Forum (Ataf) and the Organisation for Economic Cooperation and Development (OECD), shows that Malawi’s tax-to-gross domestic product (GDP) ratio in 2023 was 12.5 percent, which was lower than the average of the 36 African countries at 16 percent in 2024.
The highest tax-to-GDP ratio reported for Malawi since 2005 was at 13.2 percent in 2017, with the lowest recorded in 2005 at nine percent, according to the data.
The World Bank puts a tax-to-GDP ratio of 15 percent as the minimum threshold required for a government to provide basic goods and services to the citizenry while the United Nations estimates that developing countries need to raise at least 20 percent of their GDP through taxes to meet United Nations Sustainable Development Goals (SDGs) by 2030.
In an interview on Tuesday, EK Tax Consulting senior tax consultant Emmanuel Kaluluma said the country’s low tax-GDP-ratio reflects the inefficiency of the country’s tax system.
He said: “It reflects a low level output or voluntary compliance. This is also a reflection of poverty levels or how small our economy is.”
Speaking separately, economist Bond Mtembezeka said the situation primarily speaks to tax administration of a particular country.
He said while the Malawi Government has the potential to collect more taxes, inefficiencies in tax administration, a narrow tax base as well as tax evasion remain factors contributing to relatively lower tax revenue.
“Further, the informal sector is also quite large in Malawi which contributes to lower tax revenues,” said Mtembezeka, who is Business Partners International country manager.
On his part, Scotland-based Malawian economist Velli Nyirongo noted that the informal economy, comprising a large portion of small-scale businesses and unregistered economic activities, often operates outside formal regulatory and tax systems, making it difficult for government to broaden the tax base and capture revenues effectively.
He said: “As a result, tax collection remains limited, constraining the government’s capacity to invest in critical areas such as infrastructure, healthcare, and education.
“Furthermore, heavy dependence on grants signals fiscal fragility, as it leaves the country susceptible to fluctuations in donor support.”
Nyirongo said addressing this challenge requires structural economic reforms aimed at gradually integrating the informal sector into the formal market by, among others, incentivising formalisation and capacity-building programmes.
According to the data, in 2022, Malawi’s non-tax revenues amounted to two percent of the country’s GDP, lower than the average non-tax revenues for the 36 African countries at 6.2 percent of GDP.
On the other hand, grants represented the largest share of non-tax revenues in Malawi in 2022, amounting to 1.3percent of GDP and 63 percent of non-tax revenues.
Meanwhile, Treasury data shows that as at mid-year in the current financial year that ends on Marcy 31 2025, out of a target of K1.559 trillion for the first half of the fiscal year, K1.438.5 trillion was realised on account of under collection in taxes on goods and services as well as excise tax arising from delayed implementation of some tax policy measures.
The mid-year outturn for other revenue is K65 billion against the mid-year projection of K79.3 billion representing a variation of 18 percent, on account of underperformance by sale of goods and services.
Earlier, International Monetary Fund (IMF) observes that while achieving the Sustainable Development Goals, addressing climate change and stabilising debt LIDCs require a significant and sustainable boost in tax revenue.
Malawi Revenue Authority head of corporate services Steven Kapoloma is on record as having said that the tax collector is set to broaden the tax base by taxing more goods and services as well as addressing revenue leakages in the new 2024/25 fiscal year.
The five-year Malawi Domestic Revenue Mobilisation Strategy concedes that the country relies more on direct taxes than consumption taxes, observing that targeted policy measures has potential to expand consumption tax.
